FX.co ★ US Dollar Extends Rebound

The dollar index climbed above 99.6, extending its rebound from the three-month low of 98.8 reached on August 21, as it followed a broad surge in yields across the curve amid rising inflation risks and expectations of a more hawkish Federal Reserve. At the same time, renewed tensions between the US and Iran further reduced the already slim chances of any near-term improvement in energy flows through the Strait of Hormuz. Higher energy prices have, in turn, intensified inflationary pressures, coming shortly after a series of FOMC officials, including Chairman Warsh, cautioned that inflation could justify an interest rate increase. The Chairman also observed that the labor market has recently been operating beyond full employment, in line with annual revisions to nonfarm payrolls that came in well below the already significant recent downgrades. Meanwhile, evidence of rising inflation in the Eurozone strengthened market expectations for a rate hike by the ECB, thereby capping the upside for the DXY.